Black Is White

By James Kwak
I wasn’t sure what the Social Security wage base was (it’s $106,800, by the way), so I Googled “payroll tax cap.” The number one hit is a post at a blog modestly called The American Thinker. I wouldn’t ordinarily want to bring more attention to it, but it was the #1 hit, and according to Quantcast it has a million unique visitors per month, so nothing I do will affect it one way or another.
Anyway, the thrust of the argument is that we shouldn’t eliminate the cap on wages subject to the payroll tax because “America simply can’t afford it.”
Such plans for expanding an already-huge entitlement are beyond irresponsible, they’re frightful. Klein and Weller aren’t serious men. When reading their ideas for Social Security expansion in this time of trillion-dollar federal deficits, one realizes that progressives are unconcerned about America’s fiscal crisis.
You read that correctly. The argument is that increasing the wage base, which would bring in more revenues and reduce the deficit, is a bad thing—because of our fiscal crisis.
This claim is based on the idea that uncapping the wage base would also mean that benefits would have to be uncapped. That does seem like the sensible way to do it. But the way the benefit formula is written, when you increase the wage base, revenues go up much more than benefits. That’s because after the second breakpoint your monthly benefit is only 15 percent of your average indexed monthly earnings. So raising the wage base reduces the deficit, which is a good thing in a “fiscal crisis.”
What’s more, the author seems to make this very argument later in the post, when he claims that Social Security is almost “pure welfare.” The Social Security-as-welfare argument is based (by people who know the facts, at least) on the fact that the benefit formula is progressive, which more than counteracts the regressiveness of the payroll tax. So yes, there is some redistribution. But the thing that causes redistribution is the same thing that causes an increase in the wage base to be deficit-reducing.
Probably everyone who reads this blog knows all this already. But apparently there are plenty of people who think—or will argue—that things are their opposites.

The Social Security trust fund is expected to be exhausted in 2033. After that, there will be enough tax revenue coming in to pay out about three quarters of promised benefits. However, a few changes to the system could prevent these steep benefit cuts.

By James Kwak
First, the comic relief. From the Times:
“Senator Jim DeMint, Republican of South Carolina, said that he still wanted the Bush-era rates extended permanently and that the cost of the package was worrisome.”

Noam Scheiber’s article on the Obama administration’s dilemma as it tries to pair the dual imperatives of job-creation with deficit control is pretty disturbing. In particular, it suggests an administration that’s started to internalize some of the political constraints on fiscal expansion. To review, back last year Christina Romer told her colleagues that something like $1.2 trillion in fiscal stimulus was needed. For political reasons, that was scaled down to something more like $800 billion.